Working Paper: CEPR ID: DP664
Authors: David M. Newbery; Paul Kattuman
Abstract: A key feature of Soviet-type economies is the excessive concentration of production and the skewed size distribution of enterprises. This is the root cause of the `soft budget constraint' and a natural outcome of the political economy of these countries. Given entrenched political support for a system which favours producers relative to consumers, it will be hard to pursue an active competition policy, though it is essential for successful reform. We examine a hypothetical restructuring of Polish state enterprises and argue that this should be undertaken before they are privatized. Hungary appears to have started such a process already.
Keywords: Eastern Europe; Competition Policy; Concentration; Enterprise Size Distribution
JEL Codes: L11; L23; 012; P23; P51; P52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| concentration of production (L23) | soft budget constraints (H60) |
| concentration of production (L23) | inefficiencies in enterprise performance (L25) |
| concentration of production (L23) | reduced competition (L19) |
| soft budget constraints (H60) | inefficiencies in enterprise performance (L25) |
| restructuring (L16) | improved competition (L13) |
| restructuring (L16) | reduced relative bargaining power of large enterprises (L19) |
| restructuring (L16) | decentralization of control (H77) |
| restructuring (L16) | improved management incentives (M52) |
| restructuring (L16) | entry by small firms (L26) |
| lack of restructuring (L16) | perpetuation of inefficiencies (F12) |